The Israeli government has offered £4m in compensation to the families of Turkish activists killed by Israeli commandos who stormed a ship taking part in an aid flotilla in May 2010, according to a lawyer representing the victims.

Ramzan Ariturk said the money would have been paid to a Jewish foundation in Turkey for distribution and would be followed by a statement of "regret" for the raid by the Israeli government on the Mavi Marmara, which was bound for the Gaza Strip.

The lawyer, one of several representing 465 victims and relatives of the dead and injured on board the Mavi Marmara, said that the Israeli government had made a proposal to him through an intermediary foreign ambassador in Ankara.

Turkey cooled diplomatic relations with Israel after nine of its citizens were shot dead by Israeli commandos who landed on the Mavi Marmara to prevent its passage to Gaza. Protesters on the ship repelled the first wave of lightly armed commandos, but then the Israeli soldiers used lethal force against the unarmed passengers to end their resistance [see footnote].

Ariturk said he told the ambassador a month ago that he did not think the offer was appropriate or moral. "I also discussed the issue with the victims and their friends and they also stated that they could not accept this," he said.

He declined to disclose the nationality of the intermediary or the name of the Jewish organisation that would distribute the compensation but said the Turkish foreign ministry agreed with his decision, saying Israel should have contacted it directly.

According to sources in the Turkish foreign ministry who spoke to the Israeli newspaper Ha'aretz, Israel had not presented the offer to them directly. The source said that the principle of damages was accepted by Turkey but the obstacle was Israel's admission of guilt which Turkey insists upon.

"Israel is opposed to declaring publicly that it apologises and Turkey is not prepared to accept a wording of regret that does not include taking responsibility, that is required in an expression of apology," the sources said.

On Wednesday an Istanbul prosecutor submitted an indictment seeking life sentences for four former Israeli military commanders in connection with the raid, including the chief of general staff at the time.

The United Nations report on the raid last September concluded that Israel had used unreasonable force but that its blockade of Gaza was legal.

• Footnote added on 14 September 2012. The reference in this article to passengers being "unarmed" is used in conventional contrast to the IDF soldiers being armed with guns. A 2011 UN report into the incident found some passengers on the Mavi Marmara were equipped with metal bars, chains, slingshots and staves but said "no evidence has been provided to establish that any of the deceased were armed with lethal weapons".